U.S. Space Industry Needs To Use Foreign Suppliers To Enter Foreign Markets

Global demand for space-based capabilities will continue its rapid growth, and the U.S. government should aid U.S. industry as it seeks business overseas, a Commerce Department official said.

Ed Morris, director of the Office of Space Commercialization in the Department of Commerce, spoke before a Space Transportation Association luncheon at a restaurant on Capitol Hill.

"There is no doubt that worldwide demand for space-based capabilities will continue to grow," Morris said. "And the government should be a facilitator for U.S. industry to compete fairly for that business."

In viewing global trade, "the international space commerce environment has some unique challenges, to enable use of foreign suppliers to open up foreign markets," he said.

It’s true that U.S. suppliers object that U.S. corporations weaken the U.S. industrial base by using foreign suppliers, he said. At the same time, there is a counter-argument that by using foreign suppliers, U.S. corporations gain more business, he said.

"If U.S. industry is allowed to select foreign suppliers, or select selected foreign suppliers, on a kind of a case-by-case basis, so you are competitive in the global marketplace, it’s going to result in more U.S. business in critical areas of the industrial base," Morris said.

He agrees that "U.S. industry should not be precluded from bidding on any foreign opportunity."

Morris noted approvingly that the European Union recently adopted more open rules for awards of contracts for the Galileo navigation system, the future (2013) EU version of the U.S. Global Positioning System, or GPS.

"We were encouraged … recently by a number of European Union leadership comments about the upcoming Galileo procurement," Morris said. "They recognized the importance of open competition to enable effective program execution."

Separately, the German paper Handelsblatt reported that The Boeing Co. [BA], a U.S.-headquartered firm, is weighing a possible bid for some of that $5.2 billion worth of Galileo work.

To be sure, Morris said that the U.S. government doesn’t wish to see highly sensitive technology moved overseas, and also said that if it comes down to U.S. firms using Chinese launch services, "I don’t think we’re at the point yet" where his government is about to permit industry to "willy-nilly" go over to China, he cautioned. "Oversight of space programs takes many forms, as you all know, to ensure public safety, protection of taxpayer-owned property, and prevention of dissemination of critical technologies and capabilities. We continue to engage in areas such as export control, commercial remote sensing licensing to support the opportunity for U.S. space commerce to flourish, recognizing the criticality of space technologies to our national security. So we’re always very mindful of the national security piece of the equation."

But that said, Washington also must recognize that the U.S. space industry must compete in a global marketplace, and government actions that effectively increase prices of goods and services that industry sells will make U.S. industry less competitive, in his view.

He pointed to "today’s very competitive space transportation market, where [the typical] launch system has a very high success rate, [which] requires very competitive pricing."

Government oversight, and the implicit costs of complying with government regulations, can drive up prices and make a firm less competitive, he indicated.

"A large component of … space program costs is for oversight," he said. "You’ve got third-party costs as well as contractor costs that generate specifications … This approach adds what I call innovation opportunity costs that are more difficult to quantify, as engineers are spending their time reporting their activity instead of focusing on solutions to meet mission requirements."

Government can, in contrast, take steps to aid industry to be competitive, he said.

"For example, we’re advocating free trade agreements that will enable U.S. industry to penetrate markets and perhaps share some of these capabilities that I’ve talked about,… similar [to a] concept [that] NOAA and NASA … use today where they have … arrangements with foreign governments."

As well, he said, government can encourage industry by ensuring full and open competition in space contracts.

"That sounds a little funny, because … the government takes great pains to ensure all competitions are fair and they [welcome] all bidders," he said. "However, at a policy level, all competitions may not truly be fully open. The key term here is capability based. It is somewhat related to oversight, but more focused on the competition phase versus the execution phase of the program."

NASA offers a prime example of just how a fair contracting procedure should be run, he said.

"The most visible example in the space transportation industry is NASA’s COTS [Commercial Orbital Transportation System] program," he said. "The competition was truly open. That is, since it was capabilities based, it allowed for a wide variety of entrants, with not only different technological solutions but also alternative business approaches. This is a very different construct from classic government programs that dictate the design, development, production, deployment and sometimes operational requirements of the system.

"The increased solutions specificity results in a limited number of bidders, which can drive up costs and constrain innovation. So looking ahead, the future COTS crew capability competition should use the same approach to select the providers. The government should welcome all bidders, and not establish requirements that dictate a particular solution"

On another point, Morris said that his agency will be involved in examining the economic impact of GPS across all sectors of the U.S. economy.

GPS now is used not merely by the military, but also by businesses to track trucks, trains and more, and by civilians in their vehicles.